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Justin ScharneckEOH

Government CIO SummitOperation Clean Audit 2014: Governance of ICT: Contribution to the reduction of ICT costs and improved service delivery

Date: 30th May 2013

Using innovative technology solutions to reduce audit risk and improve service delivery

Overview

• ICT Governance – Extracting Business Value

• What is Operation Clean Audit 2014 (OCA -2014)?

• OCA -2014: Progress to-date

• AG Audit Opinion Types + Risk Areas

• EOHPSAS Response to OCA - 2014

• Our approach - Leveraging Technology

• Achievements in support of OCA - 2014

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ICT Governance – Extracting Business Value

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ICT Governance

GITO - Responsible

Corporate Governance of ICTHoD - Accountable

Corporate GovernanceMEC – Political Leadership HOD – Strategic Leadership

People Processes Technology Information

GITO - Considerations

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• Moratorium on Systems (IFMS)

• Value for Money (3 E’s)

• Pressure to reduce use of 3rd Parties (Consultants)

• Cost of Compliance (CGICTF) vs Reduction of ICT Costs

• Clean Audit Requirement

• Inherent Limitations of Transversal Systems

What is Operation Clean Audit 2014 (OCA -2014) ?

• OCA-2014 is a clarion call to all municipalities, national and provincial departments to achieve

clean audits by 2014.

• Launched in 2009 by ex Minister of COGTA (Sicelo Shiceka)

• This bold initiative is aimed at sustaining quality financial statements and management

information.

• Its core objective is the improvement of service delivery, in pursuance of further building public

confidence in government.

“There can be no compromise on the basic principles of sound financial management in ensuring that resources are mobilised efficiently to serve our people” – Pravin Gordhan (12/13 Budget Speech)

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AG Audit Opinion Types

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Audit Report Framework

Regularity

Clean Audit

Unqualified

Qualified

Adverse

Disclaimer

Report on other Legal and

Regulatroy Requirements

Predetermined Objectives

(Performance Information)

Usefulness

Reliability

Compliance :Law &

Regulation

CGICTF

Internal Control

Leadership

Financial & Performance

Mngt

Governance-ICT

-Other

Unqualified with No Emphasis of Matter/Control Findings

Supported Variance Analysis Consistency Strategic Plans & App Performance Indicators & Targets

o SMART Criteria

Validity, Accuracy, Completeness of Performance Reporting in Annual Report

Audit Evidence

Phase 1 – March 2014 Phase 2 – March 2015 Phase 3 – March 2016

OCA -2014: Progress to-date (Based on 12/13 Outcomes)*

*2012/13 CONSOLIDATED GENERAL REPORT on NATIONAL and PROVINCIAL audit outcomes

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Fewer and fewer clean audits since the launch in 2009 of OCA- 2014!

• Central Government and Public Entities

• Gradual decline from the 152 clean audits

achieved in 2009-10, to 132 in 2010-11, to

only 117 in 2011-12.

• Slightly more regressions than improvements

• 50 of these entities were unable to maintain

the clean audit reports they received in prior

year.

OCA -2014: Progress to-date (Based on 12/13 Outcomes)*

*2012/13 CONSOLIDATED GENERAL REPORT on NATIONAL and PROVINCIAL audit outcomes

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Main Risk Areas and Controls

“Even though I have stressed for the past three years the

urgent need to address the quality of the financial

statements submitted for audit and weaknesses in supply

chain management, human resource management and

information technology controls, there has been minimal

improvement” – Terence Nombembe (Auditor General)

People Processes Technology Information

Differing Needs Manual Evolving Disparate

Transversal Systems vs Disclosure Requirements

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BAS LOGIS

PERSAL MEDSAS

Transversal Systems

Cash – Based Systems Modified - Cash Accounting

• Disclosure Note Items

• Commitments

• Accruals

• Irregular, Fruitless & Wasteful Expenditure

• Movable Assets

• Leases?

EOHPSAS Clean Audit Response

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• EOH has conceptualised several pioneering solutions, incorporating

specialist consulting services, underpinned by bespoke-developed,

custom software

• These innovative and practical solutions enable our clients to respond to

challenges such expenditure management, project accounting and

movable asset management.

• We have devised a unique, cost-effective engagement model whereby we

provide a specialist service and work with public service officials in a co-

sourced environment. Our approach to delivering projects and improving the internal control environments of our clients through our commitment to skills transfer, technical advice, audit evidence and reconciliation.

EOHPSAS Technology Solutions

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Project Accounting• Multi-year MIS• Commitments register• Disclosure notes• Lead schedules, • Working papers• Audit evidence • BI Reporting for the

above…

Movable Asset Management• National Treasury format• Asset record capturing • SCOA classification• Major / Minor • Consolidation • Gap analysis • Digitised audit evidence• Inventory sheets• Duplication elimination• Disclosure

Expenditure Review• Reduce material and

inherent expenditure misallocation and misclassification risk

• Audit trail of expenditure review

• Segregation of duties• Internal controls

consistently in place • Digitised audit evidence• Automated journal

functionality

So how do we do this?

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OutputAsset Register &

Automated JournalsAudit Trail /Evidence /

Controls Disclosure Note WP RFI/COAF Register &Tracking

Consulting & ApplicationsART ERA DNA RFI Expert

Area

Assets Transaction Review AFS/IFS RFI/COAF

Movable Asset Management

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Typical Movable Asset Management Challenges

Additions not in AR

Assets not Bar-coded

Misclassification: Minor Vs Major

Manual Journals – Time Consuming

Insufficient Supporting Docs

FAR not in Treasury Format (Excel)

Physical Verification

Lack of Reconciliation to BAS

Inaccurate Asset Data in AR

Incorrect SCOA application

Leases

Key Information Required in Movable Asset Register

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ART – Asset Register Toolset• Browser-based, hosted solution

• Asset Additions reconciled to BAS

• National Treasury format

• Asset record capturing

• SCOA classification

• Major / Minor

• Gap analysis

• Digitised audit evidence

ART – Screenshots

ART – Screenshots

ART – Screenshots

Achievements in support of OCA - 2014

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ERA has enabled the review of R8billion worth of provincial government expenditure

over the last three years, fully supported by digitised evidence, at the click of a button.

eWIP produces an automated commitments register at a project level.

An MEC can now use their tablet or smartphone to access reconciled project

information to support reporting on service delivery to community members.

ART - Recently, we have supported a Department of Health to account for its

movable assets across 1200 health facilities, in accordance with the requirements of

National Treasury.

• AG Finding – R6,3million Misclassified as Transfer Payments

• Full audit trail of review provided to AG from ERA

RESULT: AG audit finding mitigated

Case Study - DPW

• 2009/10

Audit Opinion – Qualified: Misclassification of Expenditure

• 2010/11

– 7500 Transactions Review with Full Audit Trail

– 2500 Journal – 1500 Consolidated

– R475 million worth of adjusting journals

Audit Opinion - Unqualified

Case Study - DORT

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justin.scharneck@eoh.co.za